Population: 1,439 million

Wealth in domestic bank deposits: 40,037 billion USD (December 2023)

Offshore expatriated wealth: 445 billion USD

Main offshore banking locations: Singapore

Number of individual brokerage accounts: 211 million (2022)

Crypto adoption (% of population): 58.2 million (4.1%)

TLDR

China maintains strict capital controls and oversight of cross-border financial transactions. Outflows of domestic funds for investment purposes abroad by individuals face tight restrictions. Inbound portfolio investments are also regulated through programs like QFII and RQFII, which have quotas on foreign investor participation in mainland exchanges. Crypto assets have been deemed illegal financial instruments in China since 2021. Only institutional investors approved as QDII can invest in foreign securities under programmed limits.

Exchange controls

The State Administration of Foreign Exchange (SAFE) enforces China’s strict exchange control regime aimed at managing cross-border fund flows. Chinese citizens face an annual limit of $50,000 for exchanging RMB for foreign currency under rules introduced in 2007. SAFE requires Chinese nationals to fill out an application specifying the purpose, which explicitly prohibits using foreign exchange for investing in securities or insurance products abroad.

Despite these controls, some citizens have used techniques like “ants moving” to bypass the $50,000 limit, where individuals “borrow” quotas from others. However, SAFE banned these split settlements in 2009 and monitors such activities. Underground banks also illegally funnel money abroad, often via Hong Kong, prompting SAFE crackdowns to halt illicit foreign exchange.

The China Securities Regulatory Commission (CSRC) also regulates capital flows between mainland China and Hong Kong stock exchanges through the Stock Connect program launched in 2014. This system allows two-way trading between the markets while keeping capital within closed loops. However, over 170,000 domestic investors opened Hong Kong accounts to trade Chinese shares and evade onshore limits. This led the CSRC to amend provisions in 2023, now restricting Chinese nationals from purchasing domestic shares via Hong Kong. Still, some loopholes enable cross-border transfers beyond official scrutiny.

Distribution rules for foreign investment products

China tightly regulates foreign security offerings to domestic investors. Foreign companies cannot directly list or market securities on mainland exchanges. Instead, they must create a Chinese Depository Receipt (CDR) and work through Chinese brokerages. In general, the marketing and selling of foreign securities in China is subject to approval by regulators like the CSRC.

Qualified investors

China has strict regulations determining qualified investor status for both foreign and domestic institutions. The Qualified Foreign Institutional Investor (QFII) program, introduced in 2002, allows approved overseas institutions to invest in Chinese securities and remove quota limits. The Qualified Domestic Institutional Investor (QDII) program, initiated in 2006, permits certain domestic institutions to invest in foreign securities upon approval from SAFE and assignment of investment quotas. Reforms over the years have made these programs more attractive.

Cryptocurrency regulation

China has banned cryptocurrencies and declared all crypto transactions illegal since September 2021, when ten agencies including the PBOC stated crypto cannot be used as legal tender. The National Development and Reform Commission (NDRC) urged local governments to shut down crypto mining operations. China sees cryptocurrencies as volatile assets that can enable illegal activities like money laundering. The PBOC has said cryptocurrencies seriously endanger financial safety.

China first banned crypto exchanges in 2017, although overseas platforms still offered services to mainland investors. In May 2021, institutions were prohibited from crypto-related business, and authorities warned buyers have no protection trading cryptocurrencies. By June, payment firms and banks were ordered to stop facilitating crypto transactions.

The crackdown intensified in September 2021 with two key documents emphasizing the illegality of crypto. China has a large share of the global crypto market, so its bans significantly impact prices. However, analysts believe there won’t be a lasting impact as adoption grows elsewhere in Asia.

While Beijing bans public cryptocurrencies, it is piloting next-generation monetary technologies like the digital yuan. It also enables blockchain innovation. Through Hong Kong, China participates in global digital asset markets, with entities like the Bank of China issuing crypto assets abroad.